question 1
Brooks Plumbing Products Inc. {BPP} manufactures plumbing fixtures and other home improvement products that are sold in Home Depot and Walmart as well as hardware stores. BPP has a solid reputation for providing value products, good quality, and a good price. The company has been approached by an investment banking firm representing a third company, Garden Specialties Inc. iGSI}, that is interested in acquiring BPP. The acquiring rm {GSI} is a retailer of garden supplies; it sees the potential synergies of the combined rm and is willing to pay EtPP shareholders $42 cash per share for their stock, which is greater than the current stock price; the stock has Uadedatabout$36inrecentmonm.SumnuynandaanHnmUonaboutBPPfoHows BRIDE PLLHBING PRODUCTS INC. Selected Financial Information For the Years Ended December 31 2819 Industry 2619 2818 Average Cash $ 89,119,??8 5 3,556,227" Accounts receivable 55,9?3,455 3?,514,7?1 Inventory 33, 355, 415 so, 183, 645 Long-lived assets Gross book value 16?,4?3,3?? 143,9?3,3?? Net book value 133, 828, 303 95,632, 302 Replacement cost 1?B,?8?,49 188,565,338 Liquidation value 68,934,862 6?,535,269 Current liabilities 113,245,255 121,215,224 Long-term debt 32,19?,354 38,165,302 Shareholders' equity 125,141,338 3?,841,359 Capital expenditures 23,?68,860 13,198,335 Sales 669,534,??1 643,776,465 Cost of sales 493,552,233 423,491,331 Operating expense* 102, 867,355 134,965, 229 Income tax rate 38% 38% 38. 00% Depreciation expense 18,966,493 15, 864, 254 Dividends 2,950, 900 1, 450, 090 Year-end stock price 37.78 24.99 Number of outstanding shares 27, 689,554 24, 763, 554 Sales multiplier 1. 60 Free cash flow multiplier 8.60 Earnings multiplier 13.50 Cost of capital 5.2% 5 . 2% Accounts receivable turnover 5.50 Inventory turnover 8.40 Current ratio 1.90 Quick ratio 1 . 20 Cash flow ratio 1.60 Free cash flow ratio 1. 20 Gross margin percentage 35.0% Return on assets (net book value) 21 .0% Return on equity 29.0% Earnings per share $ 2.38 Operating expense includes depreciation expense.Required: 1. What is the valuation of BPP [for 2019] using the market value method? 2. What is the valuation of ElPP {for 2019} using the book value method? 3. 1I.I'I.I'hat are the valuations of BPP [for 2019} using the multiplesbased methods for sales, earnings, and free cash flow? 4. What is the estimated value for BPP using the discounted free cash flow method, assuming that the 2019 amount of free cash flow continues indefinitely? 5. Which of the methods would you use? 6. Is the GSI offer a good one? [For requirements 1 to 4. round your answers to the nearest whole dollar amount} Market value of equity method Book value of equity method _ Multiplesbased method Sales Multiplesbased method Earnings 50 am 532 g Multiplesbased method Free cash ow :- Which ot the methods would you use? arket value of equity method
